Icelandic króna surplus building fast

Foreign claimants on the estates of bankrupt Icelandic banks Kaupþing, Glitnir and Landsbanki will be paid recovered funds up to ISK 450 billion (EUR 2.82 billion) in Icelandic krónur in the next year or so, and they will not be able to convert into foreign currency.

Because of the ongoing capital controls in Iceland it will be impossible for the creditors to change their krónur onshore and doing so offshore would yield potentially extremely poor exchange rates. Fréttablaðið sources claim that the investors are being offered a way out of the problem if they invest their money within Iceland for a pre-determined amount of time.

Creditor representatives have met with ministers, MPs and other Icelandic parties trying to identify good investment opportunities for the foreign-owned krónur within Iceland. The potential investments apparently include the purchase of entire companies and sources claim there is an especially positive attitude to investments in the energy sector.

In addition to the expected rush of Icelandic krónur to be paid to bank creditors but essentially locked inside Iceland, there are also ISK 410 billion stuck offshore. The Central Bank of Iceland last month presented its proposal to repatriate the offshore funds by offering the owners of the money (which is of very little use at the moment outside Iceland) to invest it in Iceland on very favourable terms. To take advantage of the offer, the investors would need to match their krónur 50/50 with foreign currency and commit to their investments for a minimum of five years.

As has been widely discussed on IceNews and elsewhere, there is an imbalance between foreign currency/investment interests stuck in Iceland due to the exchange controls and Icelandic currency stuck overseas for the same reason. That imbalance will need to be addressed before the capital controls can be lifted and the above two methods are seen by those concerned as ways of achieving that. It is also hoped that the flow of investment will help ease the lack of inward investment caused directly by the currency controls and that returns for the foreign investors will be positive so that they keep their money in Iceland by choice once the controls are lifted.

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Vilhjalm Antonsen

Iceland never stops trying to screw foreigners and foreign creditors.
You can imagine that the “good investment opportunities for the foreign-owned krónur within Iceland” will be barren land in the interior or oil drilling licenses in areas offshore that have no oil.
Or else they will be sold something with some value at a ridiculous price, like 5-10% of some electricity company at 2 billion Euros, only to find out that they have a minority share that has no voting power and no dividends. Or Iceland will invent a new scheme later on to effectively steal the money through restrictions or taxes.

I’m not in favor of the foreign creditors, since anyone who was or is dumb enough to believe or trust an Icelander deserves to lose all his money. An Icelander in a suit or with an MBA is like a well-scrubbed gypsy on steroids. Plus most of the real creditors sold their claims to slimy “vulture funds” based in New York for pennies on the dollar. Remember those Kaupthing and Glitnir bonds selling at 2-5% of face value in London just after the crash?

A simpler solution would be to adopt a new currency, a New ISK, that would give 1:1 for current ISK, and only allow only Icelandic citizens and Icelandic-owned companies to convert. The Germans did this when East German Marks were exchanged for real DM. Anything the Germans do is legal — right?

And another thing – why wouldn’t these bank creditors just take their 450 or 860 billion ISK and just start buying stuff in Iceland without investing an equivalent amount of real hard currency? They could buy the post office, hospitals, roads, oil and food import companies, or rental real estate in downtown Reykjavik, and, incidentally, raise prices for everything Icelanders need or want. Then they could try and exchange their ISK for fish and sell it abroad.

This new flood of ISK coming out of the bank bankruptcy estates will be bad news for the average Icelander. That’s the equivalent of the entire national budget. Foreign investors won’t be buying Icelandic homes, they will be buying companies or land that will extract money from the average person, just as Michael Hudson described rentier behavior in other crashed economies.

And another thing this news tells you is that currency restrictions will NEVER be lifted. So if you live in Iceland and are hoping to sell your house and move abroad, to Copenhagen, Oslo, or Florida — no chance.